Brussels looks to sustainable finance plan to reach climate targets

(BRUSSELS) - The Commission unveiled a financial strategy to support EU climate and sustainable development goals Thursday, with extra investments of EUR 180 bn a year needed to achieve 2030 targets agreed in Paris.

The Action Plan outlines important new legislation covering the disclosure of climate impacts of certain funds and indices, and Green Bond Standards. It would also make sustainability something that both investors and EU financial supervisors must take into account.

Urgent action is needed to adapt to a more sustainable model, says the EU executive, in order to combat the unpredictable consequences of climate change and resource depletion. Its roadmap will 'boost the role of finance in achieving a well-performing economy that delivers on environmental and social goals as well'.

The Action Plan on sustainable finance is part of the EU's 'Capital Markets Union', and is one of the key steps towards implementing the historic Paris Agreement and the EU's agenda for sustainable development.

The plans for far-reaching reform could set the global benchmark for sustainable finance, said the Commission's vice-president responsible for Financial Stability Valdis Dombrovskis. But help of the financial sector was needed to "fill the annual €180 billion funding gap to reach our climate and energy targets."

"Creating the conditions for private investors to invest sustainably is crucial to achieve the transition to a cleaner, more resource-efficient, circular economy," said Jyrki Katainen, EC vice-president for jobs and growth.

The plan is inspired by the results of a High-Level Expert Group on sustainable finance, set up a year ago to elaborate a comprehensive set of recommendations for the financial sector to support the transition to the low-carbon economy. Key features include:

Establishing a common language for sustainable finance, i.e. a unified EU classification system – or taxonomy – to define what is sustainable and identify areas where sustainable investment can make the biggest impact.

Creating EU labels for green financial products on the basis of this EU classification system: this will allow investors to easily identify investments that comply with green or low-carbon criteria.

Clarifying the duty of asset managers and institutional investors to take sustainability into account in the investment process and enhance disclosure requirements.

Requiring insurance and investment firms to advise clients on the basis of their preferences on sustainability.

Incorporating sustainability in prudential requirements: banks and insurance companies are an important source of external finance for the European economy. The Commission will explore the feasibility of recalibrating capital requirements for banks (the so-called green supporting factor) for sustainable investments, when it is justified from a risk perspective, while ensuring that financial stability is safeguarded.

Enhancing transparency in corporate reporting: we propose to revise the guidelines on non-financial information to further align them with the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD).